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4 Values of the Missouri River System and Operations The principal possible source of conflict of navigation and other water uses is with irrigation requirements. The probability of such conflicts within the next 30 years is not high. Beyond that period the possibility of conflict is minimized by measures which could be taken to reduce water flow require- ments for navigation . . . It is therefore concluded on the basis of available data that navigation does not appear to be physically incompatible with other water uses on the Missouri. The Presidentâs Water Resources Policy Commission, 1950 In large and highly-controlled river systems like the Missouri, compre- hensive and accurate knowledge of system values can be useful in making decisions about reservoir release schedules. This knowledge is particularly important in systems in which adjustments to dam and reservoir operations are being contemplated. Such changes will entail tradeoffs between differ- ent uses and values. An understanding of the economic and ecologic effects of these tradeoffs requires knowledge of methods for measuring values, from standard quantification of flood-damage reduction benefits to more novel quantification of ecosystem services. Of particular relevance in this report are those values associated with operations of the mainstem reser- voir system and the links between operations, ecology, and social values. Values involved include those of hydropower distributors and users in the upper basin, floodplain farmers and other property owners, water users from Fort Peck Dam downstream to St. Louis, shippers on the channelized portions of the Missouri River, water-based recreation users, and other outdoor recreation users who currently are or potentially would be using the Missouri River ecosystem for fishing, birdwatching, hunting, and other leisure activities. 86
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 87 ECONOMIC AND SOCIAL FEATURES IN THE MISSOURI BASIN Economic activities in the Missouri basin can be divided between those in the upper and those in the lower basin. Most of the population and wealth are concentrated in the lower basin. For example, St. Charles County, Missouri, which is part of the St. Louis metropolitan area, has a population of 250,000 and has a total personal income of over $6 billion (1997 dollars). By contrast, Williams County in northwestern North Da- kota (Williston) has a total personal income of $400 million and a popula- tion of 20,000. Aside from service activities, oil and gas extraction is the largest source of income in Williams County. In 1997, farming in Williams County showed a loss of $7 million, while in St. Charles County, farming earned $7 million (U.S. Department of Commerce, Bureau of Economic Analysis, Jan. 2000, http://www.doc.gov). Per capita income in Williams County was about 20 percent less than it was in St. Charles County, and it was generally at lower levels in the rural counties throughout the basin. Where counties are largely occupied by Indian reservations, per capita personal income is even lower, dropping to $11,783 in Dunn County, North Dakota, and to $15,831 in Mountrail County, North Dakota, the home counties of the Fort Berthold tribes. Many of these Indian reserva- tions are in the upper basin. Important commercial centers along the lower Missouri River are Sioux City, Omaha, Kansas City, St. Joseph, and Jefferson City. Important com- mercial centers on the upper river are Great Falls, Williston, Bismarck, Pierre, and Yankton. Economic activities of the Missouri basinâs commer- cial centers are no longer tied directly to the Missouri River. These cities, settled because of river navigation, initially flourished because of early commercial successes in processing, manufacturing, and distribution, later flourishing as transportation hubs for railroads and highways. These econo- mies are today based largely upon services, wholesale-retail activities, and government activities. Manufacturing and transportation together make up about a quarter of these economies. Although not specifically identified in government statistics, river- and water-related tourism and recreation are components of the service sector in parts of the basin, especially the upper basin. The most striking demographic feature of the basin is the twentieth- century exodus from rural to urban areas. Populations are declining in much of the region, in some cases dramatically. During the 1990s, eastern Montana, for example, experienced a net population loss. Small net popu- lation gains in the Dakotas mask the fact that nearly all the population growth has been in the statesâ cities; most rural areas are experiencing population declines. Many areas in the upper basin are populated by fewer than six people per square mile. North Dakotaâs and South Dakotaâs
88 THE MISSOURI RIVER ECOSYSTEM 1990-2000 population gains were among the smaller in the nation and eastern Montana experienced a net population loss. Population densities decrease as one moves upstream along the Missouri River. Montana, North and South Dakota, and Wyoming are the four least densely popu- lated states in the contiguous United States. North Dakotaâs population growth of 0.5 percent in the 1990s was the lowest of any U.S. state (http:// www.census.gov). Economic fortunes within the basin mirror its varied demography. The contrast between the upper and lower basin is illustrated by the fact that the economy of the Kansas City area alone is greater than the combined econo- mies of the two Dakotas and Montana. The economy of the Omaha areaâ which is about 40 percent the size of the Kansas City economyâis larger than the state economies of the Dakotas or Montana. ECONOMIC OUTCOMES OF PICKâSLOAN During construction of the PickâSloan project, it was expected that multiple-purpose water projects would stimulate regional economic and population growth and produce national benefits in excess of their costs. Since PickâSloan construction, however, societyâs faith in large water projects to produce vast benefits has waned. That the PickâSloan Plan has yielded benefits has long been clear, but today the social costs of PickâSloan are better understood. As the World Commission on Dams observed, âDams have made an important contribution to human development, and the benefits derived from them have been considerableâ (WCD, 2000). But the commission also noted âin too many cases an unacceptable and often unnecessary price has been paid to secure those benefitsâ (ibid.). Projected water project costs and benefits are calculated through for- mal benefitâcost analysis. The U.S. Army Corps of Engineers has been charged with calculating these costs since the 1936 Flood Control Act. Benefitâcost analysis has evolved from calculating the more obvious costs and benefits of dams and large water projects, to more subtle calculations, such as the benefits of outdoor recreation and the flows of ecosystem benefits produced by aquatic ecosystem restoration. Benefitâcost analysis has a history of classifying difficult-to-measure benefits and costs as âintan- gible,â ânoneconomic,â or âimmeasurable.â However, this practice may not have promoted sound decisions, because things beyond the boundary of quantification tend to be ignored or undervalued. Fortunately, methods and procedures for quantifying the difficult to quantify are becoming more easily available (U.S. WRC, 1983; NOAA Panel on Contingent Valuation, 1993, p. 4601â4614; Daily et al., 2000).
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 89 Project Outputs and Benefits Benefits from the PickâSloan Plan are measured in monetary units. The Corps of Engineers currently measures benefits from the PickâSloan projects for the Master Manual Study according to criteria and methods prescribed in the Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies (Principles and Guide- lines, or simply P&G; U.S. WRC, 1983). System outputs assessed in Corps reports are power, navigation, flood damage reduction, water supply, and recreation. The P&G defines benefits as net additions to the national income, or National Economic Development (NED). The following sec- tions describe the products of the PickâSloan Plan, including the dollar value of benefits (and costs in the case of navigation) and the distribution of benefits among states or among particular uses in the case of water sup- plies. The values listed in this chapter were obtained from Corps of Engineers studies published in 1994 and 1998, as cited. Most benefit estimates repre- sent snapshots of normal or average years of operation. The numbers do not involve trends but rather reflect levels of use, or in the case of flood- damage reduction benefits, levels of floodplain occupancy at the time of the studies. The observations on distribution of benefits among the states are from regional studies conducted by the Corpsâ Institute for Water Re- sources in Alexandria, Virginia. The purpose of examining benefits (and costs, where appropriate) is to better understand the relative importance, in commensurable terms, of the various quantified outputs from the Missouri River system. This committee was not requested to conduct a comprehen- sive ex post economic analysis of Missouri River mainstem dam and reser- voir operations, and therefore has not attempted to produce a detailed comparison of total benefits and costs for the project. Only in the case of navigation are costs discussed, and that is because the Corps has been able to identify specific engineering costs of maintaining the navigation channel. When âbenefitsâ are discussed, these are gross benefits before any costs are subtracted. If any costs are subtracted, the term ânet benefitsâ is used to reflect this. For purposes of comparison, the major benefits of PickâSloan come from hydropower, water supply, and flood-damage reduction, each of which has annual benefits measured in hundreds of millions of dollars. Recreation comes next, with annual benefits measured in the tens of mil- lions of dollars. Navigation follows, with annual benefits measured in millions of dollars. The benefits of ecosystem services that have been foregone in order to achieve other benefits have been measured only in a 1981 study, which projected a loss of nearly one million recreation-based
90 THE MISSOURI RIVER ECOSYSTEM days of hunting, fishing, sightseeing, and boating annually in the current Missouri River dam operating plan (USACE, 1981). Observable differences in the distribution of benefits within the Mis- souri basin can be summarized as follows. Missouri has the biggest share of flood-control and navigation benefits. Nebraska has the largest share of water supply benefits. North Dakota and South Dakota realize most of the recreation benefits. Irrigation benefits (included in water supply benefits) are only about one percent of all benefits. That there may be different interests expressed by the states based on such asymmetric distribution of benefits comes as no surprise to observers of current events in the Missouri basin. Navigation The most controversial benefit calculation in the Missouri River dam and reservoir system is the value of lower basin navigation enhancement activities. This issue dates back to the first decade following passage of the PickâSloan Plan. Writing in 1965, a Stanford University political scientist reported that the 1953 Missouri River Basin Survey Commission âin re- viewing the Corpsâ navigation program on the Missouri could only find one-twelfth of benefits from erosion control and one-third of the savings to shippers claimed by the Corps. The Commissionâs benefit-cost ratio was half that calculated by the Corpsâ (Marshall, 1966). Figure 4.1 shows the tonnage carried by navigation on the Missouri from 1960 until the present. In discussing navigation traffic on the Missouri, it is necessary to separate commercial traffic (e.g., corn, soybeans, fertilizers) from the movement of sand and gravel from commercial mining operations, and from the move- ment of waterway materials connected with construction and maintenance of the navigation channel. Commercial traffic peaked in 1977 at 3.3 mil- lion tons or 1.5 billion ton-miles. By 1997, it had dropped to 1.6 million tons or 0.7 billion ton-miles, a fairly steady decline interrupted only by recession or drought years and subsequent recoveries (USACE, 2000a). By the 1990s, commercial traffic had leveled off to an average of 1.5 million tons (0.65 billion ton-miles). Commercial traffic levels on the Missouri have fallen short of the Corpsâ 1950 projections. The shortfall has been largely because of agricultural grain, food, and food product tonnage failing to meet expectations. After peaking in the 1970s, agricultural tonnage has been in steady decline. The reasons include the development of low-cost unit train traffic to high capac- ity ports in the Pacific Northwest, the decline in agricultural exports in the 1980s, and the growth of local consumption of products for feed and processing. The drought of the late 1980s and early 1990s also depressed agricultural traffic (USACE, 2000b). Baumel (1998) noted that down-
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 91 FIGURE 4.1 Total tonnage transported on the Missouri River, 1960â1999. SOURCE: USACE, 2000a. stream corn and soybean shipments are âback haulsâ that take advantage of empty barges that have transported fertilizer upstream. Without the empty barges already being upriver, corn and soybean shipments would not be economically viable (Baumel, 1998). In 1998, fertilizer, other chemicals, and primary manufacturing goods comprised 42.8 percent of commercial tonnage while agricultural products comprised 40.6 percent of commercial tonnage (USACE, 2000a). The Missouri River basin is in an unfavorable competitive position for reaching export markets compared to other re- gions. Because in the United States, waterborne agricultural shipments primarily serve export markets, this unfavorable competitive position âlikely will continue to constrain Missouri River navigation tonnageâ (USACE, 2000b). Sand and gravel mining, largely unanticipated in the earlier projections at 6.5 million tons of traffic in 1998, now accounts for over 70 percent of total tonnage (USACE, 2000a). This traffic involves hauls of one to three miles from the dredge to onshore storage sites. Sand and gravel traffic, together with the haulage of waterway materials in connection with the construction and maintenance of the navigation channel, currently account for nearly 80 percent of total waterway tonnage. Because of sand and gravel traffic, total tonnage on the Missouri has exceeded the 1950 projec-
92 THE MISSOURI RIVER ECOSYSTEM tion by 100 percent (USACE, 2000b). Nonetheless, sand and gravel traffic peaked at 4 million tons in 1981, declined in the next recession, peaked again in 1990, declined in an ensuing recession, and then rose to a new high in 1998. If construction continues to grow in the river corridor, sand and gravel traffic should grow apace. Navigation benefits reported by the Corps for 1994 were $6.3 million from 1.8 million tons of commercial traffic, and another $1.7 million from the movement of 6.7 million tons of commercial sand, gravel, and water- way maintenance materials (USACE, 1998a). In 1994, passenger cruise ship benefits were $0.7 million based on a value of $6.08 per user for a cruise that runs from St. Louis to Kansas City. These figures are based on 1994 traffic and 1995 price levels (USACE, 1998a). Net Benefits of Commercial Navigation Commercial navigation traffic had total benefits of $7.0 million in 1995 (USACE, 1998a). This figure can be compared with annual operation and maintenance costs for the navigation channel that the Corps is able to estimate because of the specificity of navigation maintenance costs. The Corps has projected its navigation benefits and its operations and mainte- nance costs at a range of flows or âservice levels.â The Corps has found that at full-service levels of Missouri River flow of 35,000 cubic feet per second (cfs), there are net benefits of less than $3 million annually from commercial traffic (USACE, 1998a). This estimate appropriately excludes traffic in sand, gravel, and waterway materials, but may inappropriately ignore recreational boating benefits that may or may not depend upon a fully maintained navigation channel. As flows fall below 35,000 cfs, net benefits of commercial navigation fall off rapidly, reaching 0 at around 30,000 cfs (USACE, 1998a). Navigation benefits are measured as the value of savings in transporta- tion costs. As required by law, shipping rates are used as the basis for calculation (P.L. 89-670). Ideally, long-run marginal costs of the alterna- tive mode of shipping would be employed as the basis for calculations. The Principles and Guidelines observes that shipping rates may not be the best approximation of long-run marginal costs (U.S. WRC, 1983). A National Research Council committee that reviewed the Corpsâ draft feasibility study for the Upper Mississippi RiverâIllinois Waterway concluded that the Corps needs a better data base of the price, origin, and destination of freight shipments by barge and alternative modes (NRC, 2001). The definition of navigation benefits is a major issue in any discussions of modifying Missouri River dam and reservoir operations. This committee noted that as net navigation benefits are sufficiently small in total and that as traffic volumes decrease as one moves upstream, an incremental analysis
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 93 of the economics of retaining segments of the navigable waterway would appear to be useful. This would especially be the case if relaxing the duty to maintain navigation flows in an upstream segment made it demonstrably easier to introduce restoration flows in that segment. As an example, if the segment from Omaha to Sioux City proved to be uneconomic in comparing its incremental benefits with its incremental costs, then that segment would be a prime candidate for efforts at restoring some ecological benefits through operational changes that would compromise, but not necessarily eliminate, navigational uses. The effects of dam releases are mostly abated by the time the river passes Nebraska City, Nebraska, located near the Iowa-Missouri border about 150 miles downstream of Gavins Point Dam (Hesse, 1994). Thus, even if navigation were significantly reduced on the stretch between Sioux City, Iowa and Nebraska City, and there were subsequent changes in flows out of Gavins Point Dam, there would be negligible hydrologic effects on Missouri River navigation downstream of Omaha. The next segment to be examined in sequence would be from Omaha downstream to some point below Omaha. In proceeding segment by seg- ment, the analysis should discover a point at which it is beneficial to retain navigation to the mouth of the river. Water Supply Benefits Water supply benefits accrue at intakes for thermal power plants and at municipal, irrigation, commercial/industrial, domestic, and public water intakes so long as daily flows exceed minimum elevation requirements for the water intakes. The operating plan assures that daily flows will exceed the minimum elevation as much of the time as is feasible. The greatest numbers of intakes are above Gavins Point Dam for all types of use except power plants. Of 25 power plants using river water, 18 were below Gavins Point and accounted for 73 percent of total generating capacity. By far the largest numbers of intakes overall were for irrigation (891) and domestic (579) supplies. There were 57 municipal intakes serving 3.1 million people. Of these, 2.9 million persons are served below Gavins Point by 19 supply intakes (USACE, 1994a). The benefits of water supplies are evaluated by the alternative-cost method, the cost of the next best alternative supply facing each user. The next best alternative is required to be a likely alternative that incorporates reasonable nonstructural and conservation measures. In 1994, the Corps found $571.6 million in annual benefitsâessentially savings in costâfrom the withdrawal of water from the Missouri River mainstem, starting at Fort Peck Lake and proceeding downstream (USACE, 1994a). Water supply benefits are concentrated in the thermal generating activi- ties in Nebraska and Iowa. Of the total benefits, 91.4 percent accrue to
94 THE MISSOURI RIVER ECOSYSTEM power and 5.6 percent to municipal water supplies. Irrigation gets 2.3 percent, mostly in South Dakota. Of the total water supply benefits of $541 million, Nebraska receives 44.8 percent, Iowa 16.4 percent, and Mis- souri 15.9 percent (USACE, 1998a). In its Master Manual studies, the Corps was concerned with the effects on water user costs of lower levels of the river than are achieved by normal operations. Cost functions relating withdrawals to river levels are relevant for computing benefits (changes in user costs) of different operating plans. All the options examined in its Draft Environmental Impact Statement indicate lowered benefits (increased costs) to water users. Minimum daily flows also help to meet water-quality objectives in the channel, although the mainstem reservoirs seem to present the most fre- quent water-quality problems. Lake Sakakawea has experienced algal blooms, and other mainstem reservoirs have exceeded state or U.S. Envi- ronmental Protection Agency ambient water-quality in the reservoir or in Box 4.1 Irrigated Agriculture The upper Missouri River basin states expected to gain substantial irrigation benefits from the PickâSloan Plan, but these benefits never materialized. Irriga- tion accounts for a little over $12 million in water supply benefits. These are cost savings to the 891 private irrigators who have permits to withdraw water from the Missouri River mainstem or reservoirs under Corps jurisdiction. There were two mainstem federal reclamation projects authorized in PickâSloan, the Garrison Project in North Dakota and the Oahe Project in South Dakota. The Garrison Diversion Unit included McClusky Canal, Jamestown Dam and Reservoir, and Garrison Dam and Reservoir. Reservoirs have been constructed along with some of the canal system but the only irrigation is limited to a small test area near Oakes, North Dakota. Lake Oahe was to provide water for the Oahe Unit. Most of the delivery features have not been constructed and no water is delivered from Lake Oahe. James Diversion Dam is the only feature that has been completed (Carrels, 1999). Of 4.7 million acres of âfull serviceâ irrigation projected in the PickâSloan Plan, 465,000 acres have been developed under the Bureau of Reclamation (U.S. De- partment of the Interior, 1989). These developed acres are found on tributaries primarily in Nebraska, South Dakota, Wyoming and Kansas and are not included in the committeeâs discussion of mainstem benefits. Some private projects also receive PickâSloan water. In a 1958 formulation of project benefits by the Corps, the primary plus secondary irrigation benefits allocated to the mainstem reservoirs were projected to be $9.8 million annually, or about 9.5 percent of the total benefits estimated for flood-control, navigation, power, and irrigation (USACE, 1958). To- dayâs irrigation benefits from 891 private intakes along the mainstem are about 1 percent of aggregate benefits and were not accounted for in original plans.
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 95 reservoir outflow for a variety of constituents like iron, manganese, agricul- tural chemicals, and arsenic (USACE, 2000a). Minimum daily flows are also important for meeting ambient water temperature standards below the thermal-electric power plants. Recreation Although they did not represent prominent benefits when the Pickâ Sloan projects were constructed, water-based recreational uses and benefits have grown substantially along the Missouri River, especially in the upper basin. Figure 4.2 shows that recreation on the reservoir increased from 5 million visitor hours each year in the mid-1950s to over 60 million visitor hours in 1998â2001. Except for setbacks in periods of drought or reces- sion, the annual growth of visitor hours on the reservoir has been remark- ably steady. A slackening in the trend is not yet apparent, although there may be different trends in different reservoirs. Visitation has leveled off since 1997. No annual statistics are systematically compiled for recreation in the mainstem channel. Based on methods described in the Principles and Guidelines, annual recreational benefits in 1994 were estimated at $87.1 million (USACE, 1994b). This is for the entire system starting with Fort Peck Lake and proceeding through the lower river. The benefits are willingness to pay values for water-based recreation that includes fishing, boating, picnicking, and water sports. Recreation-related benefits were generated from differ- ent parts of the system as follows: the upper lakes and open reaches down through Lake Oahe accounted for 47.2 percent of the benefits; the lower lakes including Lake Sharpe (Big Bend Dam) and Lewis and Clark Lake (Gavins Point Dam) accounted for 30.9 percent of the total; and the lower river below Gavins Point Dam (essentially the navigable portion of the river) accounted for 21.9 percent of the total, or $19 million. The Corpsâ own studies of visitor use were supplemented with surveys by the states. The system as a whole yielded 10.2 million recreation days annually from 1992 and 1993 studies. Visitor use at mainstem reservoirs has increased somewhat since these studies were made, but estimates of benefits have not been updated. Because it is concerned with estimating recreation benefits under different operating regimes, the Corps has developed functions relat- ing recreation benefits to lake levels and river flow volumes. Mainstem recreation benefits are apportioned among 10 states, but over 75 percent of the total accrues in three states: South Dakota (36 percent), North Dakota (26 percent), and Nebraska (16 percent). Including Iowa (5.5 percent), four states account for over 80 percent of recreation benefits (USACE, 1998c).
96 THE MISSOURI RIVER ECOSYSTEM FIGURE 4.2 Recreational use at Missouri River reservoirs, 1954â2000. SOURCE: USACE, 2000a.
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 97 Hydroelectric Power Production All generating units had been installed and all reservoirs had reached operating levels in the Missouri River mainstem dams by 1967. Since then, power generation has fluctuated with water available. In 1998, power generation was 10 billion kilowatt-hours. This was 99 percent of the average annual production. In 1993, at the end of a drought, power generation was only half as much (USACE, 2000a). Figure 4.3 shows the record of hydropower generation from 1954 to 2000. The value of the hydropower produced is not maximized because releases through the powerhouses or from the dams must satisfy other project purposes like flood-damage reduction, navigation, and certain environmental objectives such as tern and plover nesting and recreational use of the river below the dams. Hydropower benefits are based on the costs of power generated by alternative systems, usually thermal-electric. Hydropower revenues, as dis- tinct from benefits, are not based on competitive rates charged for the power because some of the power generated goes to customers such as rural electric cooperatives at preferred (less than market) rates. Power from the PickâSloan Missouri Program goes to 329 customers in a six-state area. Customers include municipalities, federal agencies, federal and other irriga- tion projects, rural electric cooperatives, public utility districts, and private utilities. Power goes outside the basin through interconnections to the Southwestern and Bonneville Power administrations, as well as to other areas served by the Western Area Power Administration. The Corps states that of all the project purposes that justify the Mis- souri River system, hydropower provides the largest national economic benefit, with an annualized value that was no less than $615 million in the Corpsâ study of operating alternatives (USACE, 1994c). Larger values were obtained when flows were modified for the environmental alternatives. Hydropower benefits accrue principally to municipalities (35.7 percent) and to rural electric cooperatives (40.7 percent). In the regional economic allocation, the principal benefiting states are Nebraska (27.3 percent), Min- nesota (21.1 percent), and South Dakota (18.6 percent). North Dakota, Iowa, and Montana share the remaining third of benefits (USACE, 1998c). Existing hydropower facilities provide an average of 9.5 million megawatt- hours, or about 9 percent of the energy used in WAPAâs Mid-Continent Area Power Pool. The six dams in the systemâfrom Fort Peck to Gavins Pointâharness 764 of the 1,090 feet of fall from the pool of Fort Peck to the tailwaters of Gavins Point. Nearly all of the water that flows into the Missouri River is used for power generation because flood storage is rarely spilled, and the irrigation withdrawals for the federal projects at Garrison and Oahe, which were expected to divert 3.8 million acre-feet annually,
98 THE MISSOURI RIVER ECOSYSTEM FIGURE 4.3 Hydropower generation from Corps of Engineers Missouri River mainstem dams, 1954â2000. SOURCE: USACE, 2000a. have not materialized. Irrigation developments on the tributaries were expected to divert an additional 2.5 million acre-feet annually but hardly more than 10 percent of these plans have been developed. Only at Gavins Point Dam do inflows exceed the discharge capacity of the powerhouse on a regular basis (i.e., 25 percent of the time).
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 99 Flood Damage Reduction Figure 4.4 shows that cumulative flood damage prevented, as calcu- lated by the Corps, rose rapidly in the 1990s. The years from 1986 to 1997 (inclusive) contained five years of annual runoff that exceeded 90 percent of the years in the historic record of runoff at Sioux City extending back to 1898. Whether hydrology is changing, channel geometry has altered, flood- plain storage has diminished, or floodplain investment is increasing sub- stantiallyâall of which are credible hypothesesâthe cumulative record of flood damage prevented shows that by 1975, $1 billion in damages had been prevented; by 1998, this number had increased to $18 billion (in nominal dollars; USACE, 2000a). Flood-damage reduction benefits are based upon a simulation of 100 years of hydrologic data, in which damage without the flood damage reduc- tion features of the Missouri River mainstem dams are estimated. It is presumed that beneficiaries would pay at most this amount to avoid flood damage. Floodplain property values were current when the 1998 study was published. Urban property (not including land) valued at $17 billion and crops valued at $402 million were exposed to flood damage in a 500+ year flood along the Missouri from Fort Peck Dam to the mouth. The Corps FIGURE 4.4 Cumulative Flood Damages Prevented on the Missouri River. SOURCE: USACE, 2000a.
100 THE MISSOURI RIVER ECOSYSTEM estimates that with existing flood storage capacity in place, the current water-control plan annually prevents an average of $414 million in damage (USACE, 1998b). Flood damage reduction benefits for the various sections are as follows: crops, 17.7 percent; residential, 25.8 percent; commercial/ industrial, 35.25 percent; and roads/railways, 20.6 percent. The principal states benefiting from the annual benefits of 414 million are Missouri (25.4 percent), Iowa (24.8 percent), Nebraska (18.7 percent), and North Dakota (17.5 percent). Average annual benefits were reduced by about one percent for the environmental options that the Corps studied. Flood damage is not proportional to the values of properties exposed to flooding. Simulations of flooding under current operations show that for the entire reach below Fort Peck, crops suffered 20 percent of the damage and residential and commercial properties suffered 80 percent of the dam- age. The distribution of damage is similar to that experienced in the 1993 flood (USACE, 1998b). The Corps has evaluated two related types of damage from higher controlled flows that might create some flooding losses to agriculture from internal drainage problems and from higher groundwater. These losses are relevant to a comparison of alternative flow regimes. The current control plan inflicts some losses on agriculture, but some higher flows at certain times can increase the losses. ACCOUNTING FOR ECOLOGICAL BENEFITS The Missouri Riverâfloodplain system consists of extensive ecosystems in and around the large reservoirs, open reaches of channel, and riparian floodplains. Some of these systems are recognized producers of recre- ational opportunities or agriculture. Some traditional ecosystems, particu- larly those representing the historical habitats of the pre-regulation Mis- souri, have been less well recognized for the social values provided through ecosystem services. As described in Box 1.1, many ecosystem services, such as fish, game, and aesthetic values, are not monetized and are not traded in markets. They thus tend to be underappreciated and undervalued by the public and by decisionmakers. The concept of the flow of services has been recognized as a useful approach for evaluating the benefits of ecosystems (Daily et al., 1997, 2000; NRC, 1999a). Since the 1960s, federal guidance for water resource project evaluation has recognized that certain natural assets have value for âunique natural beauty and scenic, historical and scientific interest and improvement of habitat for wildlife and the preservation of rare speciesâ (Senate Document 97, 1962). However, little effort was made to give these values parity with fully monetized costs and benefits. This recognition has been repeated in guidance from the U.S. Water Resources Council (WRC)
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 101 in 1973 and 1983, and most recently in an executive order. The 1983 Principles and Guidelines added new methods for evaluating recreation benefits, which would cover a substantial portion of ecosystem services. Executive Order 12893 strengthened the benefitâcost requirement for fed- eral agencies at the same time that it opened the way for wider consider- ation of environmental values by urging greater quantification of all types of benefits and costs, but also the use of qualitative measures reflecting values that are not readily quantified (Office of the President, 1994). How- ever, the P&G document has not been modified to include such approaches. To a real extent, ecosystem services have been equated with free ser- vices of nature without recognizing that certain of these services are becom- ing so increasingly scarce as to acquire value as economically scarce capital resources (Krutilla, 1967). An example of lost ecosystem services is pro- vided in a quote from the Yankton Dakotian newspaper, dated Tuesday, August 5, 1862: âKatphish, of fabulous dimensions, are being taken from the placid waters of the Big Muddy about these times. A great many of them weigh two and three hundred pounds!â The reconceptualization of the basis of ecosystem value avoids the intractable problem of attributing intrinsic value to them and makes it easier to use common measures to compare ecosystem services to more traditional âmonetizedâ river manage- ment benefits. The value of capital is defined by flows of useful services. Defining ecosystems as natural capital that yields useful services is the first step toward quantifying the value of ecosystems. It is reasonable to believe that improving ecosystem health, resilience, or biodiversity makes the ecosystem more valuable, but that value cannot be measured directly without inquiring into the enhanced flow of services from the healthier ecosystem. For example, if certain steps are taken to restore ecosystems, what increases could be expected in sandbars, fish, and birds? What user values would accrue from the additional sandbars being utilized by duck hunters, by the additional sauger captured by anglers, and by the additional catfish harvested by commercial fishers for sale to local restaurants? What user values would accrue if birders had more places to watch birds and could see more nesting and migratory species? Answers to these types of questions require quantification of the flows of ecosystem services and on the willingness-to-pay for these services. For example, thousands of birders travel to the Platte River each spring to witness the annual migration of Sandhill Cranes. State agencies along the river, such as Nebraskaâs Papio-Missouri River Natural Resources District, are promoting recreational uses. In Missouri, citizen groups such as the Friends of the Big Muddy and the Missouri River Communities Network promote public participation in improving recreational opportunities in the Missouri River floodplain. These efforts are consistent with national trends of increasing demands for outdoor recreation.
102 THE MISSOURI RIVER ECOSYSTEM Although there are discussions and research within the Corps on con- temporary environmental benefits analysis (Stakhiv et al., 2001), the P&G has not been modified to incorporate the concept of the benefits of ecosys- tem service flows. The Corps has not evaluated the economics of the flow of ecosystem services per se produced by the current and alternative operat- ing plans for the Missouri aside from water-based recreation. Considerable effort has been devoted to measuring the willingness to pay for these kinds of goods and services in the past three decades, and there has also been progress in characterizing and modeling ecosystem service flows (USACE, 1996). Unfortunately, research in economics and ecology has proceeded mostly on separate tracks. But recent discussions produced a brief but useful guide for collaboration between these two, often disparate, disci- plines for quantifying and valuing ecosystem services that could be used on the Missouri mainstem system (Daily et al., 2000). SECONDARY BENEFITS The committee recognized the dichotomy between primary and second- ary benefits and the confusion this can cause in evaluating changes in Missouri River management. Primary benefits as discussed in the foregoing sections are the increases in output of real goods and services that accrue to the nation. Secondary benefits are the financial gains that accrue to the localities in which project activities of any sort may occur. Unless these distinctions are kept straight, discussions of the issues can become confus- ing. Box 4.2 sheds further light on this issue as it affects perceptions of benefits from the Missouri system. TRADEOFFS AND CONSTRAINTS Ecosystem Goods and Services Authorization and construction of the PickâSloan dams involved tradeoffs for which the full economic and social costs have never been fully calculated or accounted for. The reservoir system replaced 755 miles of river valley with 5,940 miles of lake shoreline at base flood control pool with 989,000 acres of water surface at that pool level. When full, the total reservoir surface is 1.2 million acres (USACE, 2000a). The ecological services of 755 miles of unregu- lated river channel and floodplains were replaced with the ecological services of the reservoirs and the regulated river reaches between reservoirs. In the Missouri Riverâs navigable, channelized portion, 300,000 acres of river chan- nel, 600,000 acres of meander belt, and 1,900,000 acres of floodplain were projected to have been largely transformed by 2003 into agricultural, com- mercial, and transportation uses and navigation channel (USACE, 1981).
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 103 Box 4.2 Secondary Benefits A criticism of water resources benefit-cost analysis has been the treatment of secondary benefits. Primary benefits from government expenditures such as wa- ter resources projects are the net increase in output of goods and services that accrue to the nation. That is, they appear in the national economic accounts or, in terms of the P&G, in the NED (national economic development) account. Second- ary benefits are the financial gains that accrue to the localities in which project activities occur, but do not appear in the national economic accounts. They are the increase in business transactions experienced by a locality because, for example, recreational activity increases at a new reservoir. Secondary benefits are not real additions to NED. They merely represent the transfer of secondary economic activity from the regions that did not get the reservoir to the region that got the reservoir. After a contentious history, secondary benefits were ruled out of benefit- cost analysis, although the accounts are still kept as Regional Economic Develop- ment (RED) and are reported as instructed by the P&G. This does not mean, however, that secondary benefits are unimportant in de- bates over the construction and operation of water resource projects like the Mis- souri system. To the contrary, the greatest interest in such projects usually comes from those who live, produce, and consume in the localities affected by the projects. Secondary benefits, not primary benefits, provide the motivations of these interested parties and their representatives in Congress. For example, com- merce in the State of Missouri generates 50 percent of the primary benefits asso- ciated with navigation on the river or roughly $4 million annually in 1994 dollars in NED benefits (Iowa, Nebraska, and Kansas generate 17 percent, 14 percent, and 10 percent, respectively, of primary navigation benefits; USACE, 1994). The sec- ondary impacts in Missouri of these benefits are estimated in 1993 dollars as $3.6 million in output, $0.7 million in income, and 26 jobs (USACE, 1998). These quan- tities of local output, income, and jobs, added to the transportation cost savings accruing to barge traffic generated by the state of Missouri, are the sources of political support in Missouri for navigation on the Missouri. This committee was told by spokespersons of the large benefits accruing to the navigation functions of the river system, but these benefits are technically only the secondary benefits inflated by an expenditure multiplier to reflect total regional economic development (RED) impacts for the entire United States. By drawing attention to the issue of secondary benefits, the committee signifies its awareness of the dichotomy be- tween national and regional or primary and secondary benefits and the confusion this can cause if it is not handled rigorously in discussions of prospective changes in Missouri River management. Current Operations Tradeoffs and constraints are a part of daily operations in the mainstem system. For example, operating constraints are in effect at Fort Peck during the most critical icing conditions to prevent local flooding. As a result, the Western Area Power Administration must replace the power generation
104 THE MISSOURI RIVER ECOSYSTEM foregone with purchases on the open market to meet its distribution obliga- tions. The assumption is that the cost of the power purchased is less than the value of the flood damage avoided. Most reservoir releases for pur- poses such as fish and wildlife conservation or flood reduction involve foregone power revenues. Existing and potential tradeoffs on the Missouri system include the following: â¢ Oahe Dam releases exceed the minimum 3,000 cubic feet per sec- ond during weekend daylight hours starting in early April to enhance fish- ing and boating during the recreation season. â¢ Releases are controlled to reduce flood damage in the reach down- stream from Fort Randall Dam (Lake Francis Case) where there are homes and cabins in close proximity to the river. â¢ Hourly power peaking releases from Fort Randall Dam in June of 1999 were reduced at an unspecified cost in foregone power production. This action was taken to help prevent inundation of ten plover nests and forty tern nests in the reach between Fort Randall Dam and the Niobrara River. â¢ Baumel (1998) identified a potential tradeoff between supporting navigation on the Missouri River and using the mainstem Missouri River system to support navigation on the Mississippi River during low flows on the Mississippi. Prospective Tradeoffs and Constraints Many remediation measures aimed at restoring ecosystem goods and services will require different reservoir release patterns and thus will involve tradeoffs between existing and potential future benefits. The costs and benefits of the potential tradeoffs cannot be fully calculated at this point, but they can be described. For example, there may be beneficial effects on native fauna and flora, but there may be adverse effects on introduced fish species and possibly introduced flora, including agricultural plants. The task will be to evaluate the changes in ecosystem service flows with and without the alteration in hydrology occasioned by an altered flow regime. There will be potential for flood damage on properties that are near the channel. This may lead to flood-proofing or relocation, costing less than the amount of the expected damage from flooding. Such risks of flood damage will have to be compared with the gains in ecosystem produc- tivity. There may be drainage problems on some floodplains that have been converted to agricultural, industrial or domestic uses. The navigation sea- son may be reduced, perhaps to differing degrees in different reaches, with differing consequences for recreational boating than for commercial navi- gation, and the maintenance of the uppermost segments of the navigation
VALUES OF THE MISSOURI RIVER SYSTEM AND OPERATIONS 105 channel may not be optimal. There may be an increase in power produc- tion from the reservoirs as minimum pools are increased. There may be a reduced ability to maintain minimum flows later in the season to protect instream recreation and water supply intakes. Reservoir recreational uses may be affected. This list is not exhaustive and is not intended to be. Rather, it is intended to identify the breadth of expectations that have been raised for the Missouri River and to reflect what the Corps has already indicated in the 1994 and 1998 documents cited in this chapter. It may be appropriate to revisit the list of expectations or visions for the Missouri River and to simplify demands in order to preserve the most beneficial of the social values. It is essential to look beyond the first approximations of negative im- pacts in evaluating tradeoffs. First approximations usually look at the worst possible case. When the question of adjustment and accommodation to the proposed change is pursued to the ultimate adjustment, the costs usually turn out to be much less than were indicated by the first approxima- tion. For example, experience has shown that an industrial water user faced with increased costs for water withdrawals will experience higher costs immediately instead of later after greater efficiencies and other strate- gies are introduced into the water-using processes in the plant and in the waste stream. Experience has also shown that initial perceptions of costs may turn into benefits as production processes are reorganized. The Corpsâ 1994 and 1998 studies provide clues to the types of tradeoffs involved. These studies compared the benefits from the current water control plan with benefits from alternatives that would restore habitat. From these studies, the committee drew the impression that flood damage reduction and water supply benefits would be minimally affected, that navigation benefits would be substantially reduced, but that hydropower benefits could increase considerably because of higher pool levels in the reservoirs. Unquantified ecosystem services would also increase. But given the small scale of navigation benefits, it would not be unthinkable to expect total system benefits to increase without accounting for ecosystem services. This is because likely increases of $10 million in hydropower benefits would offset the $2-3 million decrease in navigation benefits plus the small de- creases in flood control and water supply benefits. COMMITTEE COMMENTARY Sizeable national benefits have been produced by the federal investment in the Missouri River PickâSloan Plan. This said, the smallest benefits among the authorized purposes along the mainstem come from irrigation and navigation. Although the annual national benefits from navigation appear to exceed the national costs of maintaining the channel, the expecta-
106 THE MISSOURI RIVER ECOSYSTEM tion that the Missouri River would carry large and growing tonnages of agricultural products to market has not been realized. The reasons for this lie within the competitive disadvantage that the Missouri River basin faces in reaching agricultural export markets. This geographic reality could eventually mean that the cost of channel maintenance could exceed naviga- tion benefits, at least in some upper segments of the channel. Navigation economics are particularly vulnerable to the charge that they ignore the opportunity costs in terms of ecosystem services forgone both in the upstream reservoirs and in the downstream navigation channel. An opportunity cost on the order of $3 million in annual ecosystem benefits foregone would be sufficient to push navigation into the negative range of net national economic development (NED) benefits. The Master Manual is the key document for distributing the benefits of the river and its reservoir operations. However, the procedures in the Master Manual used to produce the current suite of benefits largely reflect social values from the mid-twentieth century. As a result, the Master Manual may not adequately be meeting contemporary social demands, which place a greater emphasis on ecosystem benefits, water- and nature- based recreational pursuits, preservation of endangered habitats and spe- cies, the enhancement and conservation of biodiversity, and maintenance of the river corridorâs cultural heritage. The Corps of Engineers recognizes that the current operations regime needs to be adjusted, having worked toward a revision of the Master Manual since the late 1980s. There is today widespread recognition that the regulation of large riv- ers by dams and reservoirs has often resulted in losses of valuable ecological services. Although the environmental impacts of dams often have not been economically justified, many of those impacts can be reversed. On the Missouri River, there is a distinct prospect that a reversal of tradeoffs that would favor ecosystem restoration may be justifiable solely on the grounds that it represents an economic improvement on current mainstem dam operations. This, however, is not to deny that there may be winners and losers in a new operations scheme who will need to be carefully considered and perhaps compensated.